Announcing Christian Brandetsas – Associate Advisor

We are pleased to introduce our latest addition to the planning team at Magis Wealth Planning.

Christian Brandetsas joined Magis Wealth Planning as an Associate Advisor in March of 2017 after working for PNC Bank as an ACCEL Retail Bank Development Program Associate.  While at PNC, he earned his series 7 and 66 licenses. At Magis Wealth Planning, Christian has already begun working towards his Certified Financial Planner ® designation.

Christian

Christian is a native of Mentor, Ohio. He graduated from Notre Dame-Cathedral Latin (NDCL) high school in Chardon, Ohio.  In May 2016, Christian graduated from John Carroll University where he earned a Bachelor of Science in Business Administration (BSBA) majoring in Management.

During his college years, Christian interned for three different companies: Cleveland Clinic, Swagelok, and Open Doors Academy. On campus, Christian was a Resident Assistant for two years and Senior Resident Assistant for one year. Christian also went on and led a missionary trip through John Carroll’s Campus Ministry Department, where he traveled to Ecuador and Jamaica.

In his free time Christian enjoys exercising, reading, cooking, and spending time with his girlfriend and family.

“I chose to work for Magis Wealth Planning because I believe in the integrity of what the firm stands for. The genuine commitment to always seeking to do more (the Latin translation of “Magis” means “more” and “better”) and to provide exceptional value for our clients is something you don’t find at most firms. I have always loved being able to help people in any way I can, especially in the area of personal finance – a passion of mine. Coming to work every day, enjoying what I do, and believing in the mission of the company is a great feeling. I am very blessed and grateful for the opportunity to join the Magis Wealth Planning team.”

Benefits of the Front Page

It’s that time of year again:  while some may think we might be referring to the Masters’ Golf Tournament (maybe our favorite sporting event, coming up in a few weeks), we’re actually referring to something much less pleasurable:  income tax filing.  This year, the deadline is April 18th and for many people it’s annoying at best and downright terrifying at worst.masters image

Without proactive tax planning, most people are staring at either a Turbo Tax screen or their accountants’ mystifying tax documents and ultimately just want to know one thing:  “Will we have to write a check to Uncle Sam or will I be getting some cash back?”

It doesn’t have to be this way.  In fact, as integrated financial advisors we think it’s prudent to always be cognizant of federal and state income taxes, typically our clients’ largest expenditure each year. (DISCLAIMER:  We are not CPAs, nor enrolled agents so this should not be construed as formal tax advice as all families’ tax situations are different.  You should consult your CPA or enrolled agent for specific tax advice.)

tax guyEven though we are not CPAs nor enrolled agents we still partner closely with CPAs to ensure our clients are always compliant with tax laws and regulations.  This means our CPA-partners fill out tax forms, research the applicable issues, sign the returns and work with tax authorities, if necessary.

As financial advisors, nobody is more involved in our clients’ financial lives. For this reason, we believe staying sharp on taxes throughout the year is essential, and potentially profitable, for our clients.   Realizing this, we always try to employ what we think might be an underappreciated approach to tax planning:  the “front page” deduction.

“Front page” deductions are those tax deductions that actually lower AGI (adjusted gross income) on the “front page” of the federal tax return (Form 1040).  These tend to be more “valuable” because they can positively impact other parts of the tax return, much more so than the typical, and similar, “Schedule A” deductions (a.k.a. itemized deductions).  Why is this?  In general, because other Schedule A deductions use the AGI number as the basis to determine how much of these expenses can be deductible.

For example, if you have lower AGI you could see a larger tax deduction for:

  1. out-of-pocket medical expenses
  2. miscellaneous deductions (such as financial planning and tax preparation fees)
  3. casualty losses and others

In addition, you could also lower the amount of social security income that would be taxable (assuming you are currently taking social security).

But the trick is to lower the AGI in order to benefit more from those deductions.  This can be accomplished by employing the “front page” deductions.  For instance, instead of contributing to a charity and deducting it on Schedule A, maybe our retired clients should use a Qualified Charitable Deduction as part of their IRA required minimum distribution.  Also, as financial advisors we keep a sharp eye on those investment accounts and try to offset capital gains with capital losses during the year so as to either lower the capital gain income (on the front page) or maybe even maximize the $3,000 annual allowable capital loss.  Other examples include contributing to Health Savings Accounts and ensuring all expenses for a small business are fully (and legally) recognized as offsets to income.

This may all sound too nerdy for some but if we illustrate with an example, you may sit up and take notice at the material tax savings which could be realized by knowing how to employ these strategies.

Let’s say we have a retired married couple with the following gross income totaling about $118,000

  • $8,000 of interest & dividends
  • $5,000 of capital gains
  • $50,000 of IRA distributions
  • $40,000 of Social Security income ($34,000 taxable)
  • $15,000 of consulting work income

And let’s say they have the following expenses, some of which are deductible:

  • $10,000 of out-of-pocket medical expenses ($300 is deductible because their income is so high)
  • $8,000 of real estate taxes
  • $10,000 of charitable contributions
  • $7,500 of tax and financial planning fees

Overall, we estimate this couple would owe about $10,372 in federal income tax or about 12.8% of taxable income – not too shabby.

But, what if we made the following changes (with all other deductions remaining the same) with “front page” deductions to lower our AGI and the tax burden?

  • Make a QCD (qualified charitable distribution) to donate the $10,000 directly to charity from our RMD instead of donating from our checking account and deducting on Schedule A
  • Maximize the contribution to the HSA (if qualified) and pay most medical expenses with these funds
  • Incorporate a tax-loss harvesting strategy in taxable investment accounts to deduct the maximum $3,000 capital loss each year
  • Document and deduct $5,000 of expenses related to the consulting work

By making these changes, we have lowered our taxable income from $80,640 to only $50,246 which means our tax bill is now only about $5,841 – an annual savings of over $4,500!

In our minds, this illustrates the difference between financial planning and having “an investment guy”.  Sure, it may not be the latest & greatest stock tip (which usually crashes & burns anyway) but tax savings is real cash flow.  In addition, these savings can compound year after year adding materially to families’ net worth.

The point is this:  taxes can be confusing, boring, scary and annoying all at once.  But knowing how the 1040 tax return works can add substantial value when combined with prudent investment advice. This is why when we meet with our clients on the various financial topics throughout the year, we always have our ears open for how to lower that AGI and potentially lower the tax liability, putting real money back in our clients’ pockets.

Comments?  Questions?  Feel free to enter them below and we’re happy to address.

The Doctor Test: Your Guide to Evaluating a True Fiduciary

When it comes to providing financial advice, we like to think our advice is not unlike the “treatment” and advice doctors provide for our physical condition.  But, instead of treating a torn achilles, a heart condition or the flu, we provide advice on “healthy” asset allocation, tax strategies and retirement projections, etc.

Recently, the Department of Labor has brought to light a concept known as “the fiduciary standard” which in the most basic terms means “always acting in the client’s best interest”.   So in the medical field, it’s the equivalent of having the assurance that your doctor’s advice and recommendations are what’s best for you and not for them.  On the surface, it makes perfect sense.  Of course, the devil is in the details as it relates to someone who calls themselves a “fiduciary” as this is not a black-and-white question.  Rather – there are shades of grey that must be defined in order for you to know exactly what kind of a fiduciary you are looking for.  And we think the best way to illustrate this is to compare it with how we work with doctors.advisor-taking-money

We call this The Doctor Test and below we detail the four types of fiduciary.  (Note: For a more detailed analysis and background on how these standards developed, feel free to read a recent and comprehensive post from Michael Kitces, a financial planning industry expert.)  In short, we would like to see the financial industry operate with the same high ethics as the medical industry.

Keep in mind, each of the following types of advisors can certainly claim to call themselves “fiduciaries” just like a medical professional earns the right to call themselves a “doctor”.  However, the TYPE of “fiduciary” or the means by which they practice is critical in evaluating whether your definition of a fiduciary aligns with your financial planner’s.

1. The “SEC” or State Registered Investment Advisor (RIA): This type of advisor complies with the Investment Advisors Act of 1940, which states they must not act in any way that is fraudulent or misleading.  Sounds great right?  BUT, this just means they must disclose their conflicts of interest, it doesn’t mean they don’t actually HAVE conflicts of interest.  So they could be paid on commissions for recommending that mutual fund, they just have to disclose it in their filings.  Did you really read the small print in the disclosure they provided?

The “Doctor” Test:  You’re having chest pains and your doctor correctly diagnoses you need to take a particular prescription that would help treat the condition.  He or she recommends an expensive drug even though there’s a generic alternative at a fraction of the cost.  In the paperwork you signed, it says he could get taken on a fishing trip or a nice seminar in Barbados for recommending this drug.  Would you be OK with that? Of course not, and that’s why doctors don’t operate in this manner.

2. The Department of Labor (DoL) Fiduciary: This advisor complies with the new DoL regulation that requires “always operating in clients’ best interest” when providing retirement advice. Again- sounds great.  However, the problem is this standard only applies to investment advice on retirement accounts.  It says nothing about broader financial planning topics and does NOT apply to non-retirement accounts.  This makes no sense.

The “Doctor” Test:  You’ve been experiencing knee pain and turn to a doctor for help.  She evaluates your knee and recommends an effective knee brace (with no financial incentive) to help you alleviate the symptoms.  But then you mention your aching back and while it could be directly related to your knee problems, she doesn’t have to provide the same heightened standard of advice and recommends an expensive, high-risk procedure to be performed by a doctor she gets a referral fee from.  Any doctor we know would never practice like this.  But just like our bodies are one system of interacting components, so are our financial accounts.  It shouldn’t matter if one is classified as a retirement account or one is not!

3. The Certified Financial Planner ® Fiduciary: The CFP certification is an outstanding program as it is comprised of a rigorous series of education requirements, comprehensive (and very long) exam and continuing education which covers almost all aspects of personal financial planning.  We are CFPs here at Magis Wealth Planning so we certainly endorse the high standards the CFP Board requires of its members.  While the certification is a great start in evaluating a planner, it’s not a legal  standard. Which means that to call oneself a CFP, you must pass their exam and agree to adhere to their Code of Ethics.  That’s fine but what if a CFP doesn’t comply?  There is no legal recourse. The CFP Board can’t fine anyone or subpoena anyone or force anyone to testify in a legal matter.  Their only recourse is to strip a violator of the certification.  While this might be detrimental, stripping one of their CFP mark does not preclude them from practicing as a financial planner.

The “Doctor” Test:  Let’s say you’ve heard there is a doctor who has some high-level certification for rotator cuff surgery.  Of course if you need that procedure, you would certainly seek them out.  But what if he hasn’t kept up on the latest & greatest techniques and technologies associated with the surgery.  What’s the risk to him?  Well, he could lose that high-level certification.  But with a solid reputation already established, maybe he might not care.  But you would certainly care.  The point is the downside risk to the doctor is not as equitable to you as it is to him.

4. The “Crystal Clear” Fiduciary: In our minds, this is the most stringent standard that we believe all people seeking financial advice should demand.  These are financial advisors who usually are members of networks of like-minded advisors such as NAPFA & Alliance of Comprehensive Planners (full disclosure:  we are member of both organizations) which actually document and sign a contract with clients which explicitly states on paper they are ONLY compensated by client fees and there are no other means of compensation like commissions, referral fees or golf-junkets to the Bahamas for selling annuities.

The “Doctor” Test:  We wish we could walk into a doctor’s office or a hospital and among all the paperwork we have to fill out (over and over again, it seems), see an explicit declaration that this doctor is only compensated by what we pay them and their medical advice is not “clouded” by potentially more lucrative recommendations from third parties.  We’re confident doctors actually do operate without the conflicts, we just wish the same were true for the financial industry.

The point is this:  The advice business, be it medical or financial, can be confusing enough with all the acronyms and esoteric terminology.  What should be completely transparent is the compensation model that may or may not be driving recommendations from our practitioners.  In short, we would like to see the financial industry held to the same high standards as the medical industry.

We think a great way to cut through the confusion on all the standards, acronyms and certifications is to simply apply the “Doctor Test” when evaluating a financial advisor.  This should go a long way toward aligning your physical health with your financial health.

Optimizing Cash Flow for Retirement – Part 1

Today, we are introducing the first of four articles detailing our unique set of tactics which we believe, when integrated as one cohesive strategy, optimize cash flow for retirees in a tax efficient and cost effective manner.  This is accomplished without conflicts of interest or the exorbitant fees and restrictions of annuities as we do not sell any financial products.

Together, we call our strategy the Cash Flow Optimization for Retirees and it is comprised of “Four Cornerstones”.

  • Bond Ladder Implementation & Management
  • Social Security Optimization
  • Systematic Roth Conversion
  • Tax Efficient Asset Distribution

This strategy is ideally suited for people who are 1 to 15 years from retirement but this can also be very effective for people already in retirement.  It combines low cost investments, tax efficiency and most importantly, peace of mind that our clients’ portfolios are “doing their job” by effectively matching future liabilities (living expenses) with assets (portfolio).cash-flow

While we cannot control the stock and bond markets, we can control our reaction (or lack of reaction) to the markets and our investment costs.  In addition, we believe legally minimizing our client’s tax liability provides extra “alpha”, which could enhance portfolio returns and extend the life of the portfolio in retirement.  While we would never guarantee returns, we believe our strategy maximizes the chance of success, which we define as funding a retiree’s lifestyle without falling victim to high fees and sales commissions paid to an annuity salesman.

Part 1 of our series starts with the Bond Ladder.  Throughout 2017, we will outline the other three strategies.  Again, we believe the combination and coordination of these strategies is unique, differentiated and ideal for individuals or couples either in retirement or anticipating retirement in 15 years or less.

The Bond Ladder

In the simplest terms, a bond ladder is nothing more than a series of individual bonds, each maturing at a specified date in the future.  We believe integrating this seemingly simple concept into a coordinated strategy is a critical component to optimizing the long term cash flow needs for retirees.

What It Is:  The bond ladder is a series of bonds (not bond funds), each with a maturity date that corresponds to a year of living expenses above and beyond pension or social security income.  To build this bond ladder, we first determine how much “income” is needed from the maturing bond each year.  We then purchase (at existing rates) US Treasury STRIPS, which do not pay annual interest but instead are purchased at a discount and then mature at the par value over time. (Income tax is still owed on the “imputed” interest each year).

How It Works: Our sample clients are 58, looking to retire in 5 years at age 63.   They are starting with a portfolio of $2,000,000 and they expect to receive $35,000 / year from Social Security at age 67. They spend $100,000 per year in today’s dollars and we would like to build a 10 year bond ladder to provide peace of mind that their living expenses are covered for 10 years, regardless of stock market fluctuations.  To ensure an inflation adjusted $100,000 “matures” each year from 2022 to 2031, we would need to take $675,928 (or about 1/3 of the portfolio) and invest it in US Treasury STRIPS that mature over that time frame.

This leaves the remaining portfolio (about 66%) eligible to invest in stocks (and even some additional bonds) for long term growth as we won’t have to rely on what will likely be a fluctuating value over the years.  So even if the remaining portfolio were 100% stocks, we wouldn’t worry too much about year-to-year volatility as we have reasonable assurance, based on long term history, that over 10 years a stock portfolio is almost always higher after 10 years!

In fact, a great article in the Wall Street Journal last year (please click HERE for a copy) noted that the average recovery period for the stock market from a bear market (down 20%) to a new high is about 3.3 years!  We all remember 2008.  The recovery period from that terrible bear market was 5.3 years.

Now what happens if it’s 2021 and the stock market were to drop 10%?  The bond matures and their living expenses are funded.  But now we’re not forced to sell any of our portfolio because we know we still have the remaining 9 years for our portfolio to recover and likely, outgrow its current level.  Now, what if (in 2021) the stock market rose only 4%, the client could still fund their living expenses with the bond that matures that year.  We could then sell about $52,000 of stock (the 4% gain of the non-bond ladder funds) and fund another year of living expenses buying a 2032 US Treasury.

Why It Matters:  First and foremost- we must emphasize the implementation of a Bond Ladder is not intended to maximize portfolio returns.  In retirement- that’s not the job of a portfolio!  Instead, we think of the portfolio in risk adjusted terms that must be custom-fit to fit retirees’ cash flow needs.  This is NOT a market-timing, stock picking or “reach for yield” strategy.  Instead, the Bond Ladder provides psychological comfort and insulation from knee-jerk reactions to stock market volatility.  Instead of fearing a bear market, we can have reasonable assurance the client’s lifestyle is protected for up to 10 years without having to liquidate the stock portfolio at fire-sale levels.

In addition, we are effectively self-funding an annuity-like stream of income, without paying egregious up-front commissions (as high as 10%) and annual fees (~3%) to the annuity company.  Using our example client, buying an income stream with an annuity could cost our retirees $67,598 up front and about $20,300 in annual fees!

Finally, the psychological impact of knowing you have 10 years of retirement income fully funded cannot be understated.  As we discussed in our prior post ROI vs. ROS, we’re much more concerned with providing retirees ROS (“Return on Sleep”) than we are taking too much risk for ROI (Return on Investment).

2017 Market Outlook

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Yes, it’s that time of year again.  It’s that nostalgic week with Christmas / Hanukkah behind us and the New Year’s Celebration front and center. There is something about flipping the calendar that seems to spark a thoughtful review of the year gone by and to wonder what’s in store for us in the next twelve months.

For some reason, Wall Street prognosticators (who like to refer to themselves as “strategists”) seem inclined to provide readers & clients with their official predictions for the upcoming year as a means to provide the incremental perspective they so often claim to have (and sell).

In that light, we’re happy to jump into the fray and provide our own “official bold prediction” on where stock and bond markets are going in 2017:

“We don’t know.”

Sorry to disappoint you all but if you read our blog posts enough, you should have seen that coming.  We readily acknowledge to NOT being able to accurately predict what’s going to happen in the next twelve months.  But we are happy to admit what many other advisors have so much difficulty admitting:  we don’t know because NO ONE knows.  And anyone that claims to provide you with assurance as to what’s going to happen in calendar year 2017 should be classified in the same category with tarot card readers and astronomers.

Now this doesn’t mean we don’t have an opinion.  But having an opinion on near-term market moves and a long term investment strategy are not the same thing.  In fact, these two mindsets often conflict as knee-jerk reactions to market moves often works to the detriment of building wealth over the long term.

So why don’t we provide predictions?  Two main reasons:

  1. Predictions are almost always wrong: Since 2000, people with important-sounding titles like “Chief Market Strategist” predicted the stock market to go UP every single year by an average of 9.5%. In reality, it was up about 3.9% and actually declined in 5 of the 16 years.  That includes the massive decline in 2008, when the average prediction was for an 11% rise and the S&P 500 declined 38%!  So why are the predictions so biased to be bullish?  That’s because…..
  2. Predictions drive commissions & fees:  In the short term (less than a few years), selling predictions as “market strategy” provides some insight on the mindset of the source. Predictions are usually issued by entities who benefit from trading and gathering assets. Keep in mind who is issuing these forecasts: banks and brokerage houses who make their livelihood on some mix of trading commissions, selling high-fee mutual funds or gathering assets.  A business model with these compensation structures might have their crystal ball clouded up by the potential for a large bonus.  Said differently, these folks are speculators and/or salespeople, not investors. In fact, the louder and more outrageous these predictions are, the more they remind us of the weekly NFL “Vegas Insiders” who claim to have some unique insight as to why the Browns might cover the point spread against the Steelers this week, a dubious bet indeed.

The point is this:  we have no control over the stock and bond markets and while we might sound like a broken record, we have to emphasize again: we all need to focus on the aspects of our financial lives that we can control.  Again, these factors include our risk-adjusted asset allocation, investment fees, savings/spending rate, tax liability, value to employers/clients and most importantly, our emotions.

Over the last century or so, patient investors in the U.S. have been rewarded with owning a piece of the miracle that is capitalism.  This assumes of course, they can keep their heads despite the occasional roller coaster ride of gut-wrenching declines and euphoric increases.

Sure those predictions are fun and you might even find it slightly amusing to hear a market “expert” opine on exactly where the S&P 500 may close 2017.  But we’re in the business of helping our clients maintain and grow wealth.  We are not in the entertainment business.  Ask yourself this:  If someone really knew exactly where things are going, why would they be so generous to let us in on such valuable information?

Best wishes to all for a happy and healthy 2017!

What Einstein Would Say About Investment Fees

It’s pretty well known by most people that Albert Einstein was a pretty sharp guy.  Without getting into a summary of his Theory of Relativity (which I would get wrong anyway), one of his more famous and wise statements was:

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

While he was specifically referring to interest payments or interest income, the theory applies to growth of just about anything in percentage terms.  In short, it’s the “growth on the growth” year after year that is mathematically astounding over a longer period of time.einstein

Most people think of this concept in terms of wealth accumulation and that certainly applies.  But what often gets overlooked is that this concept cuts both ways and it can cost people millions (and I mean millions) of dollars over 20 or 30 years.

How?  Excessive fees paid for financial advice and investment management.

I know, I know – there are some of you out there that might be saying “but I’m not paying anything!” or “the insurance company pays my advisor” but we should all know there’s no free lunch! You are paying whether you see the fees explicitly listed on your statement or not.  Next time those investment statements come in, take a look at your mutual funds and do a Google search on the expense ratio of the ticker of the fund.  It should take you about 10 seconds to get a good estimate of the fund fees.  Then, if you are working with an advisor, ask them how much their AUM (asset under management) fee is, in addition to the mutual fund fees they recommended.

Some might be saying: “So what?  I’m paying for performance.” But the dirty little secret there is that almost all actively managed (i.e. expensive) funds actually under-perform their much less expensive index-fund peers!  For more detail and empirical evidence on this check out my blog More Than Luck.

The issue is not that financial advice is very, very valuable (yes, I’m biased in that regard), it certainly is.  But true value can only be judged when you know the accompanying price.  If you don’t know the price, you cannot judge the value!

This is why our firm tells all clients and prospects up front exactly how much they are paying in fees.  The first reason is that we remain completely objective in that no one pays us except our clients.  We accept no commissions, referral fees or even the occasional branded coffee mug.  The second reason, is that we’ve found our fees (while not cheap) plus low expense ratios on passive funds actually saves our clients substantial sums of money.  This is over and above the conflict-free advice we provide on just about everything financial.

Think that’s hyperbole?  Check out the chart below.  The chart compares the growth of a $1,000,000 portfolio, starting in 2016 and going out 20 years and 30 years.   The average growth rate of the portfolio before fees is 8% per year, compounded which is the average of a 50% equity / 50% bond portfolio from 1926 to 2015.

We have in our chart 3 scenarios:

  1. Portfolio growth with a 1.5% per year in total fees (which is a good approximation of asset management and fund fees) after 20 and 30 years
  2. Portfolio growth with a 2.0% per year in total fees after 20 and 30 years
  3. Portfolio growth with an example fee of $7,500 average annual retainer fee plus 0.20% fee on the portfolio (for passive fund expenses) (PLEASE NOTE: This is an estimate, our annual fee can range higher or lower than $7,500)

Chart JPEG

As you can see, the difference is astounding.  In short- if a 55 year old couple started with $1,000,000 and lived 30 years, they could SAVE between $2 million – $3 million by the time they reach 85 by NOT paying the 1.5% or 2.0% annual fees.

Of course, the cynics might say we are “talking our book” and trumpeting our own model.  We won’t deny that, but the math is indisputable.  The point is, even if you never hire us for advice, we strongly urge you to seek out a financial planner who uses a retainer based model.  Not only will you usually get objective advice on all aspects of your financial life, your portfolio will most likely grow to a point where it dwarfs a similar portfolio using a high-fee model!

Remember – the second part of Einstein’s statement is the most important- “…..He who understands it, earns it … he who doesn’t … pays it.”  Now you understand – don’t be the one that “pays it”.

Wish List for Financial Santa

As those of us with young kids know, this is the time of year when they drop some not-so-subtle hints as to what they want Santa to place under the tree on Christmas Eve.  Some requests are realistic (sports gear, games, cloths, etc.) and some – not so much (Iphone 6, another dog).  The hints usually come in the form of the classic “wish list” to Santa which conspicuously left on the kitchen table, posted to the refrigerator or taped to the bedroom door.Santa Wish List image

Given the spirit of the season, I too would like to participate.  But instead of petitioning old St. Nick for a new tie or a good book, I have compiled a different kind of wish list.  My wish list is intended for a “Financial Santa Claus” and it’s not for things I’d like to receive but instead is focused on practical changes and simple reforms in the financial world that I believe would help many families working on their careers and trying to save for all their financial goals.

So here’s my Financial Wish List:

  1. Better investment options for employer 401(k) plans: In my time working with clients, I see so many companies’ 401(k) plans with expensive and limited fund options.  For some people, their 401(k)s are their largest investment accounts and with choices limited to funds with fees sometimes in excess of 1.5% (instead of index funds’ 0.20%) this leaves employees no choice but to pay unnecessarily exorbitant fees every year.  This can mean literally tens of thousands in excessive fees over the course of a career.  It can be so egregious that very often, I work with clients to re-allocate funds (across their entire portfolio of accounts) in such a manner to “limit the damage” of the high fee options in the 401(k).
  2. No matching 401(k) in company stock: Another aspect of some poorly designed 401(k) plans is a company using their “match” provision in company stock vs. cash.  In my view, the employee is already leveraged enough to the success of the company with their career & paycheck.  Why do they need to double down with additional stock exposure?  Often, the answer is an accounting game which helps the company make their balance sheet look better with additional equity outlays vs. cash.  Again, when I see this I also work with clients to limit the damage by consistently rebalancing to reduce the exposure to the company stock as part of a broader diversification plan.
  3. Simplified Income Tax Code: This is a much more significant “wish” and has about the same chance of happening as my girls getting another dog for Christmas. According to a recent report I’ve seen the 2015 IRS tax code is 74,608 pages.  Yes pages, not words! This is absolutely ridiculous and in my opinion, speaks to the notion that the tax code is nothing more than Uncle Sam’s means to pick winners and pass out favors via tax incentives.  Even though part of what I help families with is navigating the quagmire of tax regulations, I would happily trade this value-add for the additional time to address other pressing financial needs.
  4. Eliminate “automatic” withholding from paychecks: Speaking of taxes, I believe people would be much more aware, more sensitive and hold our governments more accountable if employees did NOT have taxes automatically withheld from our paychecks.  Of course, the government employs this practice to improve collections but paying the government “automatically” masks the actual costs of the services provided.  How can anyone make a value judgement if they don’t see how much they are actually paying?  If everyone had to write a check every quarter (much like business owners like myself do), they might think twice about some of the programs and policies their favorite politicians or party support.
  5. Mandatory Financial Class for middle school and high school kids: Again, helping people with their financial lives is my business but occasionally I get requests from clients to sit down with their younger relatives just to chat about finances in general terms.  This speaks to the complete dearth of any financial education for school aged kids today.  I would like to see a one-semester class in middle school and another in high school to teach concepts like compound interest, how a mortgage works and the basics of saving and investing. With the basics, I believe a greater percentage of our children would enter the work force more aware and equipped to handle their personal finances.
  6. Everyone who has a financial advisor ask one question: “how much in dollars (not percentage) am I paying you every year?”  It’s a simple question really and I’ve written about this in another blog (which you can read here).  But I can’t overstate the importance of this:  everyone who has a financial advisor has the right to know exactly how much they are paying for their advice & service.  Advisors need to be paid for valuable service- no doubt about it.  However, people should ask themselves: why would an advisory firm NOT want their clients to know how much they are paying?  I think we all know the answer to this question.

This list could be certainly be much longer but I don’t want to overstep my bounds with Financial Santa.  After all, I haven’t been that good this year!

Merry Christmas, Happy Holidays and Happy New Year to all!